NZ steals break on giant market

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New Zealand is expected to become the first Western nation to open free trade negotiations with China, and it believes a deal as early as next year will trump Australia's agreement with the US.

New Zealand was excluded from Australia's negotiations with the US despite more than two decades of trans-Tasman economic integration under the Closer Economic Relations trade agreement.

New Zealand's Minister for Trade Negotiations, Jim Sutton, said it would have been of "mutual advantage" for the two nations to have negotiated with the US together.

"However, the circumstances of Australia's approach was more political," he said. "A decision was made to go it alone and John Howard held up the glittering prospect of an FTA goldmine."

New Zealand, with its Labour government and its antinuclear policy, which ended its participation in the ANZUS strategic alliance, had been considered an impediment, Mr Sutton said.

But New Zealand was not falling behind on free trade, he said, because it was close to completing a feasibility study for a free trade agreement with China. Beijing has also agreed to consider a free trade agreement with Australia but discussions are at a preliminary stage.

"We are ahead [of Australia] on this," Mr Sutton said. "We expect to move into full-blown negotiations next year and, hopefully, we will have a bilateral FTA with China by next year. It will be China's first negotiation with a developed economy ... it's a matter of huge importance to us."

Mr Sutton said Wellington was expecting "more dramatic movement with China" than in the US deal with Australia. It would involve the slow dismantling of trade barriers. However, he did concede that a US deal was still a high priority for New Zealand.

China was a "natural trading partner" for New Zealand and had recently moved from sixth to fourth position on its trading list.

"China has 20 per cent of the world's population, but only 5 per cent of its [arable] soil, and we are a significant exporter of food and timber. Our three biggest trading partners are Australia, the European Union and the US, but all three countries have large exportable surpluses of the very things we sell around the world, like dairy products and meat. So they are not natural trading partners."

New Zealand learnt the economically devastating lesson of exclusion in the 1970s when its dominant trading partner, Britain, joined the European Common Market.

"The British took 85 per cent of New Zealand exports at that time, now [they] take about 5 per cent. Our whole economy had been erected to supply cheap protein and grain to industrial Britain, so New Zealand has long had a sense of potential doom of being excluded."

New Zealand's Opposition leader, the former Reserve Bank governor Don Brash, said: "Australia negotiated an FTA with the US and very conspicuously left New Zealand aside, but Australia can afford to ignore New Zealand because it's so much bigger."

Dr Brash said there was bipartisan political support for the rush to China. "New Zealand is not even on Washington's FTA waiting list. The China deal is not intended to thumb our nose at Australia, but to balance our exclusion from the US deal."